DESPITE the harsh realities of load shedding up to stage 6 by Eskom, political mudslinging between the electrical utility and the government, as well as all the negative news around President Cyril Ramaphosa and the Phala Phala saga, it was business as usual for equities on the JSE last week.
Although the All Share index closed the week flat, losing only 0.2% since the previous Friday close, the index is still 8.1% higher over the past six months and is now also 1.2% positive since the beginning of the year. Among sectors, the Industrial 25 index gained 1.18% last week, recording a 18.7% gain over the past six months. The Resources 10 index, although losing 0.9% last week on the back of a stronger rand, also gained 2.0% over the last six months. The JSE is one of only a handful of equity indices that are positive over the year to date.
The news of the sharp decrease in the diesel price by 157 cents per litre from the beginning of December, as well as the announcement by Statistics SA that South Africa’s unemployment rate came down to 32.9% in quarter three 2022, from 33.9% in quarter two 2022, by creating more than 200 000 new jobs during the quarter, was welcomed by investors.
Stats SA also announced last week that the economy had grown by 1.6% during the third quarter following a decrease of 0.7% in the second quarter of 2022.
These better-than-expected economic indicators boosted a more positive sentiment in financial markets and the rand exchange rate continues to recover after losing almost 100c the previous week after the announcement that a Section 89 panel founded that Ramaphosa allegedly contravened the Constitution and anti-corruption laws with the Phala Phala dealings.
On Friday, the rand traded on R17.35 against the dollar. This is 17c stronger than the R17.52 the previous Friday, and the R17.77 level of a month ago. Given the sharp decrease in the oil price to $75 (R1 287) per barrel last week, one can expect another sharp decrease in fuel prices at the beginning of January.
During the first week after the announcement of the lower diesel price for December, the price of diesel is already over recovered by a massive 342c and petrol by 172c. It is expected that the oil price may test $70 per barrel this month.
Against the JSE, developed market indices had a horrible year. On Wall Street, the Dow Jones industrial index on Friday still traded 7.88% down for the year-to date, as the index last week lost -2.77%.
The IT heavy weighted Nasdaq traded -3.5% lower last week and is down for the year-to-date with a massive 29.2%, while the S&P500 index traded -3.37% lower last week and is down by 17.45% since the beginning of the year. In the UK, the FTSE100 index lost 1.1% last week and is still 0.5% down for the year. In Europe, the German DAX lost 1.1% last week and is still 10.1% lower for the year-to-date.
This coming week markets will await the release by Stats SA of the country’s inflation rate for November 2022. It is expected that the inflation rate had increased further to 7.7% (7.6% in October) as food and fuel prices continue to increase more than the average basket of prices. It is forecast that retail sales during October had increased by 1.2% (year-on-year) against the -0.6% decrease in September 2022.
On global markets investors await the interest rate decision by the Federal Reserve at a news conference on Wednesday. Market consensus is that the Fed will increase its lending rate by 50 basis points to 4.5%. Various developed market economies will announce their latest inflation rate and retail sales data during the week, namely the UK, US, Germany, the Euro zone and China. The data will indicate to what extent interest rates will increase further and or if these countries could move into a recession.
Chris Harmse is the Economist of Sequoia Capital Management
BUSINESS REPORT